The questions presented deal with the propriety of a restrictive covenant in an
employment contract between a lawyer employed as an associate of a law firm as employee,
and a law firm, as employer.

Specifically, the inquiries required for a resolution are:

1. Is it proper for a firm to have a contract of employment with an associate lawyer
providing that, following termination of the associate's employment for any reason and in
the event the former employee or his subsequent employer provides legal services for
compensation to any clients of his former employer, the former employee or his subsequent
employer shall be required to pay to the former employer, as liquidated damages, a sum
equal to the same percentage of such fee as the former employer would have received if
said work had been done during the associate's employ?

2. Is it proper, in order to facilitate the agreement, to characterize the firm's
clientele as property of the firm?

Discussion

Although a restrictive covenant providing for the division of fees between an attorney
or his current firm, and the attorney's former employer is a question of first impression
before the committee, the general question of a restrictive covenant based upon
limitations on geographic areas of practice or clientele have been dealt with, as set
forth in Ethics Opinion 422 (Texas Bar Journal, Feb. 1985),
specifically in answers to Queries 1 and 3.

"A lawyer shall not be a party to or participate in a partnership
or an employment agreement with another lawyer that restricts the right of a lawyer to
practice law after the termination of a relationship created by the agreement, except as a
condition to payment of retirement benefits."

Such restrictive covenants were seen to violate DR 2-108(A) in two ways. First, they
are clear violations of the explicit prohibition against attorneys entering into an
agreement restricting the right of an attorney to practice law, which recognizes no
exceptions for limitations of geography or time. Secondly, they violate a basic tenet of
the professional responsibility of all lawyers that every person have ready access to the
independent professional services of a lawyer of integrity and competence. (EC 1-1). In order to accomplish this, a
potential client must have free access to the attorney of his choice.

The agreement in question is deceptive in its wording. Although it purports to hold
"that there shall be no restriction upon employee's right to practice law" the
statement is followed by a very real restriction. The interjection of a fee to a third
party obviously impairs the creation of a lawyer-client relationship between the departing
lawyer and clients of his former firm. The impairment arises on both sides of the
transaction. The attorney may be unwilling to work at substantially reduced rates for even
his best clients, and pressure against acceptance in favor of clients paying full value to
the firm would rise within the new employer. The attorney would thus be compelled to
decline employment and the client would be deprived of the attorney of his choice. The
restrictions may not be explicit, but the result clearly violates DR 2-108(A).

We note that the prohibition of any restriction extends to partnership agreements under DR 2-108(A) and our opinion is equally applicable
thereto. Additionally, although DR 2-108(A) provides an exception for agreements dealing
with the payment of retirement benefits, the exception will not apply for restrictive
covenants utilizing a fee splitting mechanism due to the violation of DR 2-107(A), as discussed below.

The division of fees among attorneys who are not partners, or associates of, a firm is
inappropriate unless:

The client consents to the employment of the other lawyer after a full disclosure that a
division of fees will be made.

The division is made in proportion to the services performed and the responsibility
assumed by each, or is made with the forwarding lawyer.

The total fee of the lawyers does not exceed reasonable compensation for all legal
services they rendered the clients.

The agreement clearly violates the first two provisions. No request for consent of the
client is required nor even contemplated. The former firm renders no service to the
client, nor assumes any responsibility for the prompt and proper completion of the task
required. Again, these are violations of the explicit wording of the rule. Additionally,
however, such an arrangement may lead to the abuse contemplated by the third provision as
a firm desiring to retain the work may be enticed to raise their fee beyond that which is
reasonable in order to make it economically viable, considering the substantial fee to be
paid the former employer.

Question two relates to the characterization of clients. If clients and their related
files are characterized as property of the firm with their loss from the firm to a former
employee giving rise to liquidated damages, the characterization is improper. In dealing
with the restrictive covenant based upon geography of practice, the ABA in Formal Opinion
300 (1961)has noted:

"Clients are not merchandise. Lawyers are not tradesmen. They have
nothing to sell but personal service. An attempt, therefore, to barter in clients, would
appear to be inconsistent with the best concepts of our professional status."

Since clients are not merchandise and are free to seek the lawyer of their choice, an
attempt to recognize a proprietary interest in clients is improper.

Conclusion

1. It is not proper for a firm to have a contract of employment with an associate, or a
partnership agreement with a partner, providing that, upon leaving the firm the associate
or partner would be required to pay to his/her former employer a percentage of fees earned
thereafter from clients brought from his/her former employer.

2. It is not proper for a firm and a partner or associate thereof to enter into an
agreement that categorizes clients and their related files as property of the firm which
could give rise to a claim for damages for the purpose of inhibiting a former employee or
partner in accepting employment from any such client.